We’re Building Houses Again
There are growing signs of a housing recovery, and that’s great news for the economy.
By Matthew Yglesias|Posted Thursday, Oct. 18, 2012, at 1:09 PM ET

Workers pour concrete at the construction site for the Channel Mission Bay housing development in March, San Francisco Photograph by Justin Sullivan/Getty Images.
The U.S. economy got a solid piece of news Tuesday morning when the Census Bureau reported a 15 percent increase in new housing starts in September relative to August, a 34.8 percent increase from a year ago. That doesn’t mean we’re in a construction boom or that one’s likely to start anytime soon. But when it comes to job-creation, rates of change matter more than levels, and even a return to a merely average level of construction could be a huge win for the economy.

But how reliable are the numbers? It turns out that estimating the total number of housing starts across the country is hard, so the data come with huge margins of error. On its face, any monthly swing in housing starts could be nothing more than statistical noise and sampling error. But there is a second set of data that are more reliable: building permits. Permits aren’t identical to starts, since some jurisdictions don’t require them and some permitted projects get delayed or canceled for one reason or another. But the two series move in the same direction—if lots of permits to start building are being issued, you can count on a lot of projects launching. And the margin of error for permitting data is much smaller and paints the same picture—permits rose 11.6 percent month-to-month and 45.1 percent on a year-to-year basis.

Housing is one of the key sectors that helps lead an economy out of the funk. That’s because home sales and home building are much more sensitive to interest rates than grocery sales or doctors’ visits, which are driven by immediate needs.

Sluggish home construction is sometimes attributed to “overbuilding” during the pre-crash boom years. Former Obama administration economist Christina Romer, for example, recently wrote that “we just built an awful lot of houses in the mid-2000s” and as a result “we are unlikely to need to do much residential construction for quite a while.” That’s become the conventional wisdom, but it doesn’t stand up to scrutiny. On a per capita basis, we’ve had at least three construction booms larger than the mid-aughts boom, but nothing even remotely comparable to the bust over the past five years.

The issue is actually slightly different. The problem is not that America has too many houses. It is that our houses are too big. Twentysomethings having trouble finding a job or suffering through low-paid internships may not want to live at home with their parents, but the physical space to accommodate them exists. And many of those children now have the financial capacity to live on their own, but only in apartments. A decade ago, young people or people with poor credit who might be doubling up with their parents were offered mortgages by a finance industry that thought it had eliminated risk. In retrospect, this was a mirage, and those homebuyers couldn’t actually afford the houses they bought. So part of the reason housing is slowly rousing itself from the doldrums is that we’re going back to building apartments. The share of new units that are in single-family structures is still higher than it was in the mid-80s or early ‘70sseventies, but it’s steadily falling. Some people own condos (I do) and others rent single family homes, but generally big structures are for renting. That trend toward multifamily construction will probably have to continue to get people out of mom’s basement and into their own rentals.

Clearly, nobody should expect residential investment to return to its 2005 peak level anytime soon. But if over the course of 2013 it merely converges to its long-term average level, that could add 1.7 percentage points of growth to next year’s GDP—great news for the economy.

That said, to many Americans a “housing recovery” means not a return of construction activity and jobs but a recovery of the housing wealth they lost in the aughts. Here the outlook is a good deal worse. The vast nationwide run-up in home prices was a genuine bubble unmoored from the fundamentals. It’s true that investors in particular locations may make money because some underlying change (better schools, new weather patterns, the rise and fall of industries) makes it more desirable. But the country as a whole has plenty of space to add new houses in response to demand for housing. In other words, the very same increase in construction activity that could boost GDP and slash unemployment should stop the typical house from increasing much in value.

This is from the Greater Alexandria Area Association of Realtors Multiple Listing Service. It was data reported to the MAR. I am not sure what the parameters are, but the comparisons made are from year-to-year.
Nonetheless, the numbers are up.

Source: Greater Alexandria Area Association of Realtors Multiple Listing Service

In the the land section, which includes farmland, lots and small tracts of land there were 8 sales over $200,000, 8 sales between $100,000 and $200,000 and 35 sales under $100,000. Here’s how 2012 compares with other years…

There have been 30 sales so far in 2012. Pretty good actually…sale prices are at the low end of the spectrum. 4 of the sales were over $200k (one of them was closer to farmland…), 9 sales were between $100k to $200,000 and 17 sales were under $100,000. Here’s how the sales compare with other years:

It really is a great time to buy that lakehome. Sales are happening, this market may have found it’s bottom; only time will tell. Total gross sales are reminiscent of the glory years of 2004, take a look…

Sales under $100k were 8 for the year, $100-200k are 27 for the year, $200-300k are 34 for the year, $300-400k are 16 for the year, $400-500k are 7 for the year, $500-600k are 4 for the year, $600-700k are 2 for the year, $700-800k are 1 for the year and $800-$1m are 2 for the year.

Pretty darn good numbers huh?

Source: Greater Alexandria Area Association of Realtors Multiple Listing Service

Other than pricing, it appears that sales are strengthening. The higher end products have taken a a real back-seat in this market. For non-waterfront, single-family homes sold in Douglas County in the MLS for the following time periods, here’s whast I have:

*82 of the closed sales, 30.37% of the total were under $100,000 (2011: 48 closed under $100k, 23.88%).
*222 of the closed sales were under $200k/140 between $100k and $200k, which is 51.85% of the total closed sales (2011: 119 closed between $100k and $200k, 59.20%).
*267 of the closed sales were under $300k/45 between $200k and $300k, which is 16.67% of the total closed sales (2011: 29 closed between $200k and $300k, 14.43%)
*3 of the closed sales were over $300,000 which is 1.11% (2011: 7 closed over $300k, 3.48%).

As you can see, a dramatic shift under $100,000. There were 69 more sales this year over last year in third quarter comparisons. There were more sales in all categories except over $300,000.

Yesterday, the owners of Pioneer Development had a formal groundbreaking for the first building (to be known as the Runestone) in StoneManor. I gave a short speech that I have enclosed…

“Good afternoon and welcome to the Ground-Breaking of the first building at StoneManor. We would like to introduce the owners of the project, Jim Deal, Matt Kuker, Stan Kirckof and myself. The conception of StoneManor began 5 years ago…the road led to the four of us completing the dream to provide a quality living project that will enhance the lives of Alexandrians for decades to come. With your continued support, we can all make that a reality.

We would like to personally thank Mayor Ness and members of the City Council for their support… and especially thank Mike Weber for his vision and guidance in seeing StoneManor to this date.
I would sincerely like to thank my wife Janet, my two sons and my friend Stan; for tolerating me the last 5 years. I think that tolerate is the right word here.

There are many others that brought us here that need to be thanked for their efforts as well, because it was never easy. These folks are Lyon Contracting-for slapping Stan and I into reality, Jason Murray-Economic Development, the folks at Bremer Bank, members of Design Tree, Gary Syverson-our lead attorney and Julie Rambow-my right arm.

Thank you all again for sharing this day with us, we at Pioneer Development intend to make the citizens of Alexandria proud of StoneManor.”

Anyway, that about sums up where we are about to go with this project. It will be a great addition to the community and will provide good quality housing with additional ammenities not currently found in this market. We suspect that a great deal of our market share will be retirees, empty nesters, senior citizens, single working people, young professionals…all in the crossroads of not wanting to own a home but still looking for secure and affordable housing in Alexandria, MN.

StoneManor will have the highest standards for occupancy that are allowed by the Fair Housing Laws. Prospective tenants will be subject to a criminal background check, a credit check and a previous housing history before they are allowed to gain occupancy. Contrary to some malicious rumours that less intelligent people spread without verification, StoneManor will be a model multi-family development. Again, the citizens of Alexandria, MN will be proud of StoneManor. Thank you.